Limited Partnerships / Limited Liability Companies

Will a Limited Partnership or Limited Liability Company Protect my Assets?

Assets transferred to a limited partnership or a multi-member LLC (which are not fraudulent transfers) may be protected from the creditors’ claims against the owners of the entity. The creditors of a partner of a limited partnership or a member of an LLC are only entitled to a charging order. A charging order entitles the creditor to distributions made in respect of that ownership interest, but does not allow the creditor to take control of the ownership interest. The I.R.S. will treat the creditor who has a charging order as the owner of the interest for federal income tax purposes. Since the creditors cannot compel a distribution and may receive taxable income as a result of the charging order, interests in limited partnerships and limited liability companies are generally treated by creditors’ attorneys as being undesirable tainted assets.